Filed Under:Health Insurance, Disability

Disability Insurance Observer: Cash

Opinion

The income umbrella (AP photo/Charles Dharapak)
The income umbrella (AP photo/Charles Dharapak)

This Disability Insurance Awareness Month, and it should be a great time just to write long, emotional -- and completely true -- articles about why agents and brokers should get more people to protect their incomes against the risk of disability.

Because, seriously: Protection against inability to work is urgently, desperately needed.

Most adults who have a hope of paying for commercial insurance have health insurance. Most know they should have life insurance. Many have only a vague idea that disability insurance exists, or what it does. Selling disability insurance is an obvious way to do well by doing good.

But, on the other hand: Rates are so low it's actually challenging for insurers to write the product. I think what they're really thinking is, "Understand this product. Value this product. Desire this product. But... apply for the product in a year or two. After rates have gone up."

Some people at the Federal Reserve Board will say that the main reason that rates on the kinds of bonds an insurer typically buys are so low is that companies are uncertain about the future and reluctant to borrow money. The Fed folks will say that demand for cash is weak.

But I know, from first-hand experience, that the reason demand is low is because regulators, rating agencies and others terrified by what went on in 2008 have written rules that keep just about anyone who would really want to borrow money out of borrowing money.

How crazy are the credit rules?

Some of you reading this may be rating analysts, insurance company portfolio managers, or investment advisors. You can post angry comments here if I missed a credit card payment. You could come to my office and yell at me if I missed a payment. My family has been doing business with roughly the same bankers since about 1915. I've made all of my credit payments ever, and got only one of them in late (I did not know a $70 credit card bill I owed around 2004 existed), and I hardly ever carry a balance, but the credit card company cut me back to a $500 credit limit.

Meanwhile, to try to compensate for the fact that Fed officials and their colleagues have tied borrowers up in knots, the Fed has been doing what it can to keep rates artificially low, so at least Warren Buffett and Bill Gates can borrow some money and run wild at the store.

Everyone knows the rates have to bounce back up. Or, it seems that way.

But, because the situation is such a mess, money managers at disability insurers feel as if they have to hold a bunch of cash just to avoid getting whipsawed.

In other words: The returns on bonds are awful. But disability insurance issuer money managers can't even get those awful rates, because they're afraid of getting stuck with stupid looking fixed-rate investments if rates suddenly go up like soda from an aluminum can that's been shaken up by the Incredible Hulk.

The money managers are holding cash, and earning nothing on that cash, to try to cope with what the Incredible Hulk is doing to the aluminum can.

The Incredible Hulk here is the Fed. Maybe it should think about shaking the aluminum can less and figuring out some way to let the pent-up pressure out in a controlled fashion, before the pressure lets itself out in an uncontrolled fashion.

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Uncertainty hurts Unum disability results

Rates are low -- and seem likely to rise. Cash has been a burdensome king.

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